Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:
When the inventory turnover ratio is dangerous for the company?
Options:
High turnover of inventory
Low turnover of inventory
Both of these
None of these
Correct Answer:
Low turnover of inventory
Explanation:
Low turnover of inventory may be due to bad buying, obsolete inventory, etc., and is a danger signal. High turnover is good but it must be carefully interpreted as it may be due to buying in small lots or selling quickly at low margin to realise cash.